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taxmap/pubs/p527-021.htm#en_us_publink1000219207

Illustrated Example(p23)


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On June 1, Tim and Emily Donovan bought a vacation condominium to use as rental property. They began advertising in June that the property would be available for rent beginning July 1. The Donovans used the property for 10 days during June. They didn't have any tenants in July, so family and friends used it for the 15 days they weren't using the property themselves. On August 3, they began renting it for $300 per week (a fair rental price) and rented it continuously through December 20. They had no tenants for the rest of December, so the Donovans used the property for the rest of the year.
They had the following costs associated with the vacation property for the 7 months they owned it.
 Mortgage interest$10,500 
 Real estate taxes300 
 Repairs400 
 Fire insurance120 
 Advertising150 
The property was ready and available for rental use on July 1, so it was considered placed in service at that time. They figured $1,200 depreciation for the 6 months it was available for rent.
taxmap/pubs/p527-021.htm#en_us_publink1000219209

Completing Worksheet 5-1(p23)


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The Donovans answer "Yes" to each of the questions at the top of Worksheet 5-1 and continue to Part I.
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Part I. Rental Use Percentage(p23)


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Rental Use Percentage

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Line A.(p23)
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The property was available for rent beginning July 1, so they enter the total number of days (184) from July 1 through December 31.
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Line B.(p23)
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They had no tenants during the month of July or from December 21–31. They enter 42 days (31 days in July + 11 days in December).
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Line C.(p23)
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Total days of rental use equals 142 (184 − 42).
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Line D.(p23)
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Their days of personal use totaled 52 (10 days in June + 31 days in July + 11 days in December). They must include in their personal use any use by family and friends.
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Line E.(p23)
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Total use of the property equals 194 days (142 + 52).
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Line F.(p23)
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Rental use of the property is 73% (142 ÷ 194) of its total use for the year. In completing this worksheet, they will multiply any of their expenses that apply to both personal and rental use by 73% (.73).
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Part II. Allowable Rental Expenses(p23)


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Allowable Rental Expenses

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Line 1.(p23)
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The Donovans enter $6,000 (20 weeks × $300 per week), the total amount of rent they received for the year.
taxmap/pubs/p527-021.htm#en_us_publink1000219219

Lines 2a–2e.(p23)
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They enter $7,665 ($10,500 mortgage interest × .73) on line 2a and $219 ($300 real estate taxes × .73) on line 2b. On line 2d they enter the full $150 spent on advertising because it is a direct rental expense that does not have to be divided. On line 2e, they enter $8,034 ($7,665 + $219 + $150).
Next, they enter the amounts from line 2a ($7,665), line 2b ($219), and line 2d ($150) on the appropriate lines of Schedule E (see the illustrated form).
taxmap/pubs/p527-021.htm#en_us_publink1000219220

Line 3.(p23)
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Because $6,000 minus $8,034 is less than zero, the Donovans enter -0- on line 3. This shows that no additional rental expenses can be deducted on this year's return. They need to complete the rest of the worksheet to see what expenses can be carried over and deducted the following year if they have enough rental income.
taxmap/pubs/p527-021.htm#en_us_publink1000219221

Lines 4a–4e.(p23)
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The Donovans enter $380 (($400 repairs + $120 insurance) × .73) on lines 4a and 4d. They enter -0- on line 4e (the smaller of $0 and $380).
They do not make an entry on Schedule E for the direct expenses entered on line 4a because all of their rental income has been offset by the expenses listed on lines 2a–2d. But see Lines 7a–7b below.
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Line 5.(p23)
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They enter -0- on line 5.
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Lines 6a–6e.(p23)
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The Donovans enter $876 (($1,200 depreciation from 7/1 through 12/31) × .73) on lines 6b and 6d. Their entry on line 6e is -0-, the smaller of $0 and $876.
They do not make an entry on Schedule E for the depreciation listed on line 6b, again because all of their rental income has been offset. See Lines 7a–7b below.
taxmap/pubs/p527-021.htm#en_us_publink1000219224

Part III. Carryover of Unallowed Expenses to Next Year(p23)


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previous topic occurrence Carryover of Unallowed Expenses to Next Year next topic occurrence

taxmap/pubs/p527-021.htm#en_us_publink1000219225

Lines 7a–7b.(p23)
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The Donovans enter $380 ($380 − $0) on line 7a. On line 7b, they enter $876 ($876 − $0). This means that they have operating expenses of $380 and depreciation of $876 to carry over to next year.
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Schedule E (Form 1040)(p23)


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previous topic occurrence Supplemental Income and Loss next topic occurrence

The Donovans have entered the rental portion of their deductible expenses from Worksheet 5-1 on the appropriate lines of Schedule E (Form 1040), as follows.
 Line 5$  150 
 Line 127,665 
 Line 16219 
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Line 19.(p23)
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This is the total of lines 5 through 18.
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Line 20.(p23)
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No entry is made because no depreciation deduction is allowed this year.
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Line 21.(p23)
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This is the same as line 19 because there is no entry on line 20.
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Line 22.(p23)
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The Donovans have a net loss of $2,034 from this rental property. As instructed, they enter the amount in parentheses to show that it is a loss. Next, they read the instructions for Schedule E to see if they must file Form 6198. Since they are fully responsible for the investment in their vacation condominium, their investment is considered to be at-risk and they do not need to file Form 6198.
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Line 23.(p23)
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To find out how much loss they can deduct, the Donovans refer to the instructions for Schedule E to see if they must file Form 8582. They determined that they can deduct the full loss shown on line 22 and that they meet all the criteria for not filing Form 8582 (see Limits on Rental Losses in chapter 3). Their line 23 entry is (2,034).
taxmap/pubs/p527-021.htm#en_us_publink1000219233

Lines 25 and 26.(p23)
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The Donovans do not have any other rental or royalty property, so they enter their $2,034 loss on lines 25 and 26. They also enter the loss on line 17 of their Form 1040.
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Worksheet 5-1. Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home—Illustrated

Use this worksheet only if you answer "yes" to all of the following questions.
  • Did you use the dwelling unit as a home this year? (See Dwelling Unit Used as a Home.)
  • Did you rent the dwelling unit at a fair rental price 15 days or more this year?
  • Is the total of your rental expenses and depreciation more than your rental income?
PART I. Rental Use Percentage
A. Total days available for rent at fair rental price A. 184      
B.Total days available for rent (line A) but not rented B. 42      
C. Total days of rental use. Subtract line B from line A C. 142      
D. Total days of personal use (including days rented at less than fair rental price) D. 52      
E. Total use of the property. Add lines C and D E. 194      
F. Percentage of expenses allowed for rental. Divide line C by line E  F.  .73   
PART II. Allowable Rental Expenses
1.Enter rents received1.  6,000   
2a.Enter the rental portion of deductible home mortgage interest and qualified
mortgage insurance premiums (see instructions)
2a. 7,665      
 b.Enter the rental portion of real estate taxes b. 219      
 c.Enter the rental portion of deductible casualty and theft losses (see instructions) c.                
 d.Enter direct rental expenses (see instructions) d. 150      
 e. Fully deductible rental expenses. Add lines 2a–2d. Enter here and
on the appropriate lines on Schedule E (see instructions)
2e. 8,034   
3.Subtract line 2e from line 1. If zero or less, enter -0-3.  0   
4a.Enter the rental portion of expenses directly related to operating or maintaining
the dwelling unit (such as repairs, insurance, and utilities)
4a. 380      
 b.Enter the rental portion of excess mortgage interest and qualified mortgage insurance
premiums (see instructions)
b.                
 c.Carryover of operating expenses from 2008 worksheet c.                
 d.Add lines 4a–4c d. 380      
 e. Allowable expenses. Enter the smaller of line 3 or line 4d (see instructions)4e. 0   
5.Subtract line 4e from line 3. If zero or less, enter -0-5.  0   
6a.Enter the rental portion of excess casualty and theft losses (see instructions) 6a.                
 b.Enter the rental portion of depreciation of the dwelling unit b. 876      
 c.Carryover of excess casualty losses and depreciation from 2008 worksheet c.                
 d.Add lines 6a–6c d. 876      
 e. Allowable excess casualty and theft losses and depreciation. Enter the smaller of
line 5 or line 6d (see instructions)
6e. 0   
PART III.  Carryover of Unallowed Expenses to Next Year
7a. Operating expenses to be carried over to next year. Subtract line 4e from line 4d7a. 380   
 b. Excess casualty and theft losses and depreciation to be carried over to next year.
Subtract line 6e from line 6d
b. 876   
taxmap/pubs/p527-021.htm#en_us_publink1000219236
taxmap/pubs/p527-021.htm#TXMP6cebcc8d
Donovan Schedule E (Form 1040) Text DescriptionDonovan Schedule E (Form 1040)  
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Worksheet 5-1. Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home

Use this worksheet only if you answer "yes" to all of the following questions.
  • Did you use the dwelling unit as a home this year? (See Dwelling Unit Used as a Home.)
  • Did you rent the dwelling unit at a fair rental price 15 days or more this year?
  • Is the total of your rental expenses and depreciation more than your rental income?
PART I. Rental Use Percentage
A. Total days available for rent at fair rental price A.                
B.Total days available for rent (line A) but not rented B.                
C. Total days of rental use. Subtract line B from line A C.                
D. Total days of personal use (including days rented at less than fair rental price) D.                
E. Total use of the property. Add lines C and D E.                
F. Percentage of expenses allowed for rental. Divide line C by line E  F.    .      
PART II. Allowable Rental Expenses
1.Enter rents received1.              
2a.Enter the rental portion of deductible home mortgage interest and qualified
mortgage insurance premiums (see instructions)
2a.                
 b.Enter the rental portion of real estate taxes b.                
 c.Enter the rental portion of deductible casualty and theft losses (see instructions) c.                
 d.Enter direct rental expenses (see instructions) d.                
 e. Fully deductible rental expenses. Add lines 2a–2d. Enter here and
on the appropriate lines on Schedule E (see instructions)
2e.             
3.Subtract line 2e from line 1. If zero or less, enter -0-3.              
4a.Enter the rental portion of expenses directly related to operating or maintaining
the dwelling unit (such as repairs, insurance, and utilities)
4a.                
 b.Enter the rental portion of excess mortgage interest and qualified mortgage insurance
premiums (see instructions)
b.                
 c.Carryover of operating expenses from 2008 worksheet c.                
 d.Add lines 4a–4c d.                
 e. Allowable expenses. Enter the smaller of line 3 or line 4d (see instructions)4e.             
5.Subtract line 4e from line 3. If zero or less, enter -0-5.              
6a.Enter the rental portion of excess casualty and theft losses (see instructions) 6a.                
 b.Enter the rental portion of depreciation of the dwelling unit b.                
 c.Carryover of excess casualty losses and depreciation from 2008 worksheet c.                
 d.Add lines 6a–6c d.                
 e. Allowable excess casualty and theft losses and depreciation. Enter the smaller of
line 5 or line 6d (see instructions)
6e.             
PART III.  Carryover of Unallowed Expenses to Next Year
7a. Operating expenses to be carried over to next year. Subtract line 4e from line 4d7a.             
 b. Excess casualty and theft losses and depreciation to be carried over to next year.
Subtract line 6e from line 6d
b.             
taxmap/pubs/p527-021.htm#en_us_publink1000219268
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Worksheet 5-1 Instructions. Worksheet for Figuring Rental Deductions for a Dwelling Unit Used as a Home

Caution. Use the percentage determined in Part I, line F, to figure the rental portions to enter on lines 2a–2c, 4a–4b, and 6a–6b of
Part II.
Line 2a. Figure the mortgage interest on the dwelling unit that you could deduct on Schedule A (as if you were itemizing your deductions) if you had not rented the unit. Do not include interest on a loan that did not benefit the dwelling unit. For example, do not include interest on a home equity loan used to pay off credit cards or other personal loans, buy a car, or pay college tuition. Include interest on a loan used to buy, build, or improve the dwelling unit, or to refinance such a loan. Include the rental portion of this interest in the total you enter on line 2a of the worksheet.
  Figure the qualified mortgage insurance premiums on the dwelling unit that you could deduct on line 13 of Schedule A, if you had not rented the unit. See page A-7 of the Schedule A instructions. However, figure your adjusted gross income (Form 1040, line 38) without your rental income and expenses from the dwelling unit. See Line 4b below to deduct the part of the qualified mortgage insurance premiums not allowed because of the adjusted gross income limit. Include the rental portion of the amount from Schedule A, line 13, in the total you enter on line 2a of the worksheet.
 Note. Do not file this Schedule A or use it to figure the amount to deduct on line 13 of that schedule. Instead, figure the personal portion on a separate Schedule A. If you have deducted mortgage interest or qualified mortgage insurance premiums on the dwelling unit on other forms, such as Schedule C or F, remember to reduce your Schedule A deduction by that amount.
     
Line 2c. Figure the casualty and theft losses related to the dwelling unit that you could deduct on Schedule A if you had not rented the dwelling unit. To do this, complete Section A of Form 4684, Casualties and Thefts, treating the losses as personal losses. If any of the loss is due to a federally declared disaster, see the Instructions for Form 4684. On Form 4684, line 20, enter 10% of your adjusted gross income figured without your rental income and expenses from the dwelling unit. Enter the rental portion of the result from Form 4684, line 22, on line 2c of this worksheet.
 Note. Do not file this Form 4684 or use it to figure your personal losses on Schedule A. Instead, figure the personal portion on a separate Form 4684.
     
Line 2d. Enter the total of your rental expenses that are directly related only to the rental activity. These include interest on loans used for rental activities other than to buy, build, or improve the dwelling unit. Also include rental agency fees, advertising, office supplies, and depreciation on office equipment used in your rental activity.
     
Line 2e. You can deduct the amounts on lines 2a, 2b, 2c, and 2d as rental expenses on Schedule E even if your rental expenses are more than your rental income. Enter the amounts on lines 2a, 2b, 2c, and 2d on the appropriate lines of Schedule E.
     
Line 4b. On line 2a, you entered the rental portion of the mortgage interest and qualified mortgage insurance premiums you could deduct on Schedule A if you had not rented the dwelling unit. If you had additional mortgage interest and qualified mortgage insurance premiums that would not be deductible on Schedule A because of limits imposed on them, enter on line 4b of this worksheet the rental portion of those excess amounts. Do not include interest on a loan that did not benefit the dwelling unit
(as explained in the line 2a instructions).
     
Line 4e. You can deduct the amounts on lines 4a, 4b, and 4c as rental expenses on Schedule E only to the extent they are not more than the amount on line 4e.*
     
Line 6a. To find the rental portion of excess casualty and theft losses, use the Form 4684 you prepared for line 2c of this worksheet.
 A.Enter the amount from Form 4684, line 10               
 B.Enter the rental portion of line A               
 C.Enter the amount from line 2c of this worksheet               
 D.Subtract line C from line B. Enter the result here and on line 6a of this worksheet               
     
Line 6e. You can deduct the amounts on lines 6a, 6b, and 6c as rental expenses on Schedule E only to the extent they are not more than the amount on line 6e.*
*Allocating the limited deduction. If you cannot deduct all of the amount on line 4d or 6d this year, you can allocate the allowable deduction in any way you wish among the expenses included on line 4d or 6d. Enter the amount you allocate to each expense on the appropriate line of Schedule E, Part I.